Diane Francis

Of all the recent legal shenanigans in Ottawa, the failure to plug money laundering loopholes remains the most egregious.

Here’s the problem: Canadian cities rate highly among the most desirable in the world, but also the most unaffordable. Vancouver took the top spot for unaffordability in 2017 based on the gap between low incomes and high prices, according to a global study. Toronto was the 13th most unaffordable — a major obstacle to attracting talent or head offices.

The culprit has been money laundering — by criminals, kleptocrats and tax evaders. Their favourite means of hiding money is real estate. In 2018, Ontario and B.C. imposed a 15 per cent tax on non-resident buyers, resulting in home sales falling around 40 per cent in Vancouver in January compared to the same period last year.

In the Toronto region, the average sale price of a home in 2018 fell slightly to $787,300 from $822,681 — still excessive when taking income-to-pricing into consideration.

Much more must be done by governments. The foreign-buyer tax can be evaded easily because there are no transparency and disclosure requirements. Anti-corruption organization Transparency International offered a glimpse into the scale of foreign speculation abuse in 2015 with an analysis of Vancouver’s 100 most valuable property deals. It found nearly 50 per cent of ownerships were hidden through shell companies, nominees and trusts. The same likely applies to Toronto and Montreal, where money is parked in condos that are often left vacant.

Statistics Canada says the RCMP estimates up to $15 billion of laundered money enters Canada each year. That doesn’t include laundering by crooks who also bury proceeds in real estate. What governments must do, according to the latest report by the United Nation’s Financial Action Task Force (FATF) is crack down on money laundering enablers in Canada — lawyers, real estate agents, notaries and developers.

“Requirements (in Canada) are inoperative toward legal counsels, legal firms and Quebec notaries,” said the FATF report. “In light of these professionals’ key gatekeeper role, in particular in high-risk sectors and activities such as real-estate transactions and the formation of corporations and trusts, this constitutes a serious impediment to Canada’s efforts to fight money laundering (or terrorist financing).”

Naturally, vested interests claim money laundering and foreign buying are minuscule. But if true, then why did taxes on a small percentage of foreign owners in B.C. and Ontario (along with a ban on foreign buying in New Zealand) bring about price relief, mostly on luxury properties?

The disclosure of beneficial owners is a key solution. Otherwise, for example, real estate can be bought by a proxy person or company. Typically, funds come from a trust, managed by a shell company owned by another trust with an account in Luxembourg or Vanuatu, managed by a Swiss or Singaporean banker who doesn’t know the owner. Such arrangements must be illegal. The U.S. Treasury Department now requires beneficial ownership disclosure.

This is what Canada must do to drive out dirty money and get prices in line:

— Create a public registry of beneficial owners, and penalties for non-disclosure; — Lawyers, real estate agents and notaries must report suspicious owners and transactions, as is now required of banks; — Speculation must be stopped by taxing residences that are unoccupied, which will also free up supply; and — Where real estate prices have soared above affordable levels for locals, bans on foreign ownership should be imposed as has been done in New Zealand, China, Hong Kong, Switzerland, Greece, Hungary, Denmark, Poland and Malta, among others.

Current proposals by the NDP — to flood the market with new affordable housing — or by conservatives — to lift zoning restrictions — simply won’t move the dial.